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CIRCULAR No

CIRCULAR No. 55-TC/TCDN OF AUGUST 18, 1997 GUIDING THE SUBSIDIES FOR THE STATE COMMERCIAL BANKS TO COVER INTEREST RATE DISPARITIES RESULTING FROM UTILIZING SHORT-TERM CAPITAL TO PROVIDE MEDIUM- AND LONG-TERM LOANS

Under the direction of the Prime Minister in Official Dispatch No.6213/KTTH of December 7, 1996, concerning "providing investment loans by utilizing short-term capital"; Official Dispatch No.959/KTTH of March 3, 1997, concerning "implementing the 1997 investment credit plan" and Official Dispatch No.1753/KTTH of April 11, 1997, concerning "implementing plans for providing investment loans by utilizing short-term capital";

The Ministry of Finance hereby provides the following guidelines regarding subsidies for the State commercial banks to cover interest rate disparities resulting from utilizing short-term capital to provide medium- and long-term loans as designated by the Government:

I. GENERAL PROVISIONS:

1. Objects of application: State commercial banks which have been assigned to provide medium- and long-term loans by utilizing short-term capital, including:

- The Bank for Investment and Development of Vietnam,

- The Industrial-Commercial Bank of Vietnam,

- The Bank for Foreign Trade of Vietnam, and

- The Bank for Agriculture and Rural Development of Vietnam.

2. Scope and principles for granting:

2.1. Only interest rate disparity actually resulting from providing medium- and long-term loans by utilizing short-term capital shall be subsidized in strict accordance with the list of investment loans as designated by the Government and announced by the Ministry of Planning and Investment and the State Bank of Vietnam.

The loans must be used for the right purposes and provided for the right objects with the proper interest rates as prescribed.

2.2. The amount of subsidized interest rate difference shall be determined on the following principles:

- For loan contracts signed prior to January 1st, 1997: To fully subsidize the difference between the common short-term loan interest rate and the prescribed loan interest rate of 1.1% per month (13.2% per year) on the amount of capital actually lent.

- For the loan contracts signed after January 1st, 1997: To fully subsidize the difference between the common short-term loan interest rate and the prescribed loan interest rate of 0.81% per month (9.72% per year) on the amount of capital actually lent.

2.3. The commercial banks assigned to use short-term capital for medium- and long-term loans shall monitor and separately account loans, recover debts and debit balance of investment capital in order to ensure the comfortable and accurate calculation and check of the amounts of subsidies for the interest rate differences.

II. SPECIFIC PROVISIONS:

1. Procedures and methods for working out plans to determine the amount of interest rate difference to be subsidized:

1.1. Annual subsidy plans: shall be determined according to the following formula:

Subsidy Loans {Ordinary Prescribed } Number of

amounts to be {monthly monthly } months

in the = subsidized X {interest rate - interest rates for} X with loans

plan monthly {for short- medium- and } to be subsidized

year {term loans long-term loans ) in the year

(1)

In which:

- Loan amounts calculated for monthly subsidies: are the monthly planned average loan debit balances actually incurred in conformity with the designated list (on full month basis)

The monthly planned average loan debit balance is the average of the planned debit balance at the beginning of a month and the planned debit balance at the end of that month.

- Ordinary monthly interest rate for short-term loans is the average interest rate for loans actually provided by commercial banks to State enterprises according to each province or city at the time of signing loan contracts (within the ceiling lending interest rate set out by the Governor of the State Bank).

- The prescribed monthly interest rate for medium- or long-term loans is the interest rates at two different points of time (as stipulated in sub-point 2.2, point 2, section I).

1.2. Implementation procedures:

a. Basing themselves on the list of designated investment projects to be provided with medium- and long-term loans, the State commercial banks shall draw up plans proposing the subsidies for interest rate differences according to annual and quarterly plans, and submit them to the Ministry of Finance for their inclusion into annual budget estimates (calculated according to formula 1).

b. The Ministry of Finance shall consider and summarize reports from commercial banks in order to determine annual and quarterly subsidy plans for interest rate disparities in the State budget expenditure plan; and at the same time inform the State commercial banks thereof.

c. Quarterly, the Ministry of Finance shall consider and temporarily grant subsidies for State commercial banks to cover interest rate differences in accordance with the annual and quarterly plans already determined.

2. Mode of granting subsidies for actual interest rate disparity:

2.1. Formula for calculating subsidies to cover actual interest rate disparity:

Interest rate disparity amount actually incurred in the accounting year to be subsidized shall be calculated in accordance with the following multiplication method:

Annual amounts {Ordinary Prescribed } Total of multiplications between

of subsidies for {monthly monthly } the actual medium- and long-term debit

covering actual = {short-term - medium- or} X balances and number of actual

interest rate {lending long-term } debit balance days in the year

disparity {interest rate lending rate} ----------------------------------------------

30

(2)

2.2. Method of granting subsidies for actual interest rate differences:

a/ At the end of a fiscal year, State commercial banks assigned to provide medium- and long-term loans shall calculate and determine the actual interest rate disparity proposed to be subsidized according to method of multiplication and report it to the Ministry of Finance (calculated according to formula 2).

The data on proposed subsidies must detail each loan contract and the classification of enterprises into central and local categories.

b/ On the basis of reports from State commercial banks, the Ministry of Finance shall check and determine the official amounts of interest rate disparity to be subsidized for commercial banks and settle as follows:

- If the actual amounts of subsidy are higher than those temporarily granted, the Ministry of Finance shall make up for the deficit.

- If the actual amounts of subsidy are lower than those temporarily granted, the commercial banks shall be allowed to transfer the differences into the first quarter investment loan plan of the next year (if the investment loans have not been recovered); or to remit them to the State budget (if the investment loans have already been recovered).

The central commercial bank shall account the sum of subsidies for interest rate disparity into its revenue (turnover) and put it in a separate account.

c/ Regarding over-due loan contracts, State commercial banks shall apply the over-due interest rate stipulated by the State Bank.

Interest rate differences resulting from the application of the over-due interest rate shall be summarized and reported to the Ministry of Finance for separate solution.

d/ The central commercial bank shall make monthly (quarterly) reports to the Ministry of Finance on:

- Debit balance at the beginning of the accounting period, regarding the designated medium- or long-term loans,

- Loan amounts provided during the accounting period,

- Debit amounts recovered during the accounting period,

- Average debit balance at the end of the accounting period,

- Interest rate disparity actually incurred in the accounting period.

III. ORGANIZATION OF IMPLEMENTATION:

1. The granting of subsidies to cover interest rate disparities prescribed in this Circular shall only apply to medium- and long-term loans specified in Government�s Document No.6213/KTTH of December 7, 1996, and in accordance with the additional investment list attached to Decision No.237/KTTH of September 20, 1996 of the Prime Minister.

2. State commercial banks assigned to provide investment loans shall have to properly carry out the draft of plans and accurately determine the interest rate disparity amounts proposed to be subsidized annually in accordance with provisions of this Circular.

The 1997 plan for subsidies (including figures of the fourth quarter of 1996 - if any) shall be reported to the Ministry of Finance after receiving this guiding Circular.

Problems arising in the course of implementation shall be promptly reported to the Ministry of Finance.

For the Minister of Finance

Vice Minister

PHAM VAN TRONG